In a saucepan, melt butter over medium heat. Add in scallions and sauté to soften – about 4 minutes. Add in the 3¼ cups water, milk, hot sauce, pepper, and salt. Bring to boil. Whisking continuously, very slowly pour in the polenta (or cornmeal). Decrease heat to maintain a simmer and cook, uncovered, until thickened – about 15 minutes. Stir often, taking care to get into the edges. In a blender, pureé the corn with the remaining 1/4 cup water for about 5 seconds. Pour into the thickened grits, also adding the cheeses, stirring to blend. Cook another 5 minutes or so to thicken. Top servings with scallion green slices, more shredded cheese, and paprika, if desired.